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Stock Market News for November 10, 2016

Benchmarks finished higher on Wednesday as investors embraced the election of Republican Donald Trump as the president of the United States. Stocks made a dramatic turnaround from deep overnight losses as investors snapped up infrastructure, healthcare and financial stocks, while they dumped safe-haven assets including bonds.

Trump’s willingness to spend more on America’s roads and bridges boosted construction stocks, while his policy to repeal Obamacare and free up cash currently held overseas for tax reasons helped biotechs gain traction. A bonanza of deregulation and tax cuts, meantime, had a positive impact on financials.

For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.

The Dow Jones Industrial Average (DJI) advanced 0.4%, to close at 18,589.69, its highest level since Aug 18. The S&P 500 gained 1.1% to close at 2,163.26. The tech-laden Nasdaq Composite Index closed at 5,251.07, increasing 1.1%. The fear-gauge CBOE Volatility Index (VIX) tanked 28% to settle at 13.49. A total of around 11.7 billion shares were traded on Wednesday, far above the last 20-session average of 7 billion shares. Advancers outpaced declining stocks on the NYSE. For 54% stocks that advanced, 44% declined.

Trump Win to Boost Infrastructure Spending

Investors poured money into sectors that may benefit from the Trump’s victory. Trump is in favor of beefing up public spending by hundreds of billions of dollars on infrastructure. In fact, he is expected to offer $137 billion in tax credits to private construction companies undertaking infrastructure projects.

Shares of Caterpillar Inc. (CAT) surged 7.7% on Wednesday, while it gained almost 35% this year, making it the Dow’s top gainer for 2016. Shares of United States Steel Corporation (X) soared 17.2%, while Nucor (NUE), Steel Dynamics (STLD) and AK Steel (AKS) were all up about 10% as well.

Biotechs Shine

Trump’s populist tone remained far friendlier to the biotech industry than that of Clinton. Trump remained silent on the drug pricing debate, which could mean fewer headwinds for the industry. Clinton, on the other hand, raised quite a hue and cry last year, vehemently criticizing the sharp hike in the price of Daraprim, used to treat parasitic infections.

Meanwhile, Trump announced plans to “repeal and replace” the Affordable Care Act, better known as Obamacare. Even though the act helps purchase insurance plans at a subsidized rate, it does levy taxes on the industry that reduces profitability.

Trump also plans to trim business tax rate to 15% from 35%. The lower tax burden is expected to boost profits for large biotech companies. Such firms can, in the meantime, repatriate cash held overseas and only pay 10% tax on it, as per Trump’s policy. This extra cash can be further utilized for stock buybacks, boost earnings, pay dividends or invest in drug research.

The iShares NASDAQ Biotechnology Index (IBB) soared 23.37 points or 8.9% to settle at 284.99 on Nov 9. The index jumped from a critical support level of 250 earlier this week, which is the low end of the trading range for the index for most of this year. Whenever the index has bounced back from such a level, it has invariably resulted in an average rally of 15% this year.

Trump has pledged to repeal the 2,300-page Dodd-Frank Act. Trump could lighten the regulatory burden on U.S banks. Regional banks had to keep their assets under management under $50 billion because above that threshold would mean higher capital requirements. But under Trump, this regulation may be scrapped.

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